15 CASE STUDY ON DOWNFALL OF FUTURE GROUP
Mayur Sahare, Ridhdee Padhye, Amol Kale, Rohit Ingle
1 INTRODUCTION
Future Group is Indian conglomerate, founded by Kishor Biyani in 1987 and based in Mumbai, Maharashtra. The company is known for having a significant prominence in Indian retail and fashion sectors, with popular supermarket chains like Big Bazaar and Food Bazaar, lifestyle stores like Brand factory Central, etc. The group also has a notable presence in integrated foods and FMCG manufacturing sectors. Future Retail Limited and Future Lifestyle Fashions Limited, two operating companies of Future Group, are among the top retail companies listed BSE assets, and in National Stock Exchange Of India to market capitalisation. The brands and stores were performing very well in the Indian market. Biyani was able to reap the fruit of the liberalisation of 1991 and thus capture the market. Again in 2001, he diversified his business and started Big Bazaar, which is considered as his biggest success. A series of Big Bazaar stores were launched all over the country.
Divisions of Future Group
Future Retail Limited
Future Lifestyle Fashion Limited
Future Consumer Enterprise Limited
Future Innoversity Limited
Future Supply Chains Limited
Future Brand Limited
Future Capital Holdings Limited
Future Style Lab
Reasons behind the fall of Future Retail:
EXCESSIVE DIVERSIFICATION:-
The main problem of the Future Group and Kishore Biyani was too much Diversification. The speed of expansion, acquisition of more
retail assets left the company burdened with huge debt, which
led to a rating downgrade as well.
In 2007, Future Group diversified into the insurance segment and launched Future Generali Indian Insurance with Italian insurer Generali. Future Capital was also
launched, which offers financial services, wealth management services, equity broking, and real estate broking. Then, the Future Group also entered the real estate sector.
Biyani had burnt his cash by investing in Bollywood as well spent nearly Rs. 26 crores both of which commercially flopped.
Future Retail bought many national and regional retail businesses, especially selling grocery, during 2014-2017. The intent behind the acquisition was to connect with customers with a vast network of small stores.However, what they failed to understand was that it was hard to successfully diversify a retail business.
Continuous Restructuring:-
Due to huge expansion and Diversification, Biyani was forced to restructure the Future Group by de-merging the non-retail assets. Only four formats were kept from 24 - Pantaloons, Central, Big Bazaar and Food Bazaar.
However, even after the de- merge, the debt problems were piling up. The problems escalated in 2012 when the core retail business borrowing surged
16 to Rs. 5,800 crore and the net
debt-equity ratio became 1.8x.
The Rs.5800 crore debt was nearly 55 % of the company's FY2012 EBITDA. To reduce the debt burden, Biyani sold off his first retail success Pantaloons to K.M. Birla's Aditya Birla Group for Rs 1600 crore, in 2012.
Kishore Biyani was head-on challenged by a wide-spreading network of Amazon Retail, Amazon Pantry and the capital boost received by Flipkart after Walmart bought a stake in Flipkart.
To cope up with the direct challenge of online platforms, the promoters of Future Group tried e-commerce marketplace through Big bazaar Direct but were unable to go far. In the meantime, Reliance Retail, Spencer's, Tata Star Bazaar had grown their retail franchise, which further created problems for the Future Group by reducing its market share.
E- Commerce and FDI Policies :-
Foreign direct investment (FDI) is an investment made by a company or an individual in one country into business interests located in another country. FDI is an important driver of economic growth.
Any investment from an individual or firm that is located in a foreign country into a country is called Foreign Direct Investment. Generally, FDI is when a foreign entity acquires ownership or controlling stake in the shares of a company in one country, or establishes businesses there.
While announcing Future Group’s e-commerce strategy in
2017, Biyani had stressed blending technology with his existing physical stores. “The idea was to convert the entire offline journey of a Future Group consumer into the online world," said the second person cited earlier.
Towards the end of 2016, the retail major began hiring to build digital assets to support a new e-commerce strategy. Biyani unveiled the Retail 3.0 initiative at a Nasscom Product Conclave in November 2017. By 2018, it had 500-600 employees building different digital assets for Retail 3.0. In November 2018, e- commerce giant Amazon bought a 9.5% stake worth ₹2,500 crore in Future Group.
After that, Future Retail had to function in the era under the UPA government. The UPA govt was keen to open the retail market for global players like Walmart, Tesco. Biyani was against this, but eventually, the global players came in.This major incident down the Morales of the company, which hampered the growth and working of the company.
Way Forward For Future Group:-
Future Enterprises Ltd (FEL), Future Lifestyle Fashions Ltd (FLFL), Future Supply Chain Solutions Ltd (FSCSL), Future Consumer Ltd (FCL) can sustain on their own and can be rebuilt by restructuring their liabilities with the help of current lenders and investors.
FMCG company FCL has assets such as a 110-acre food park at Tumkur, Karnataka, which can be leveraged to rebuild the company.
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Future Lifestyle Fashions Ltd (FLFL), which handles the flagship fashion business of Future Group, has not defaulted on any loan repayments so far and here the group would raise money after divesting some of the few key brands under its portfolio.
The ability to focus frees up resources internally to concentrate on those activities at which the company has distinctive capability and scale, experience, or differentiation to yield economic benefits. In other words, focus allows a company to concentrate on creating relative advantage to maximize total value and allows others to produce supportive goods and services.
While collaborating with other retailers can certainly expand the reach and build buzz, it can also expose to new ideas and tactics. Future Group can test these new concepts before doing a full-blown integration into business. When it works, early adopters are seen as innovators—a label many retailers strive to attach to their brand.
